Cara bid to swallow Second Cup fails

Food services giant Cara Operations Ltd. Has failed in its hostile bid to take control of the Second Cup coffee chain.

The Toronto Star
January 10, 2002

Cara bid to swallow Second Cup fails
Canadian Press

Food services giant Cara Operations Ltd. Has failed in its hostile bid to take control of the Second Cup coffee chain.

The Toronto company, which owns the Harvey's, Swiss Chalet and Kelsey's restaurant chains, said late Thursday it had acquired only enough shares to increase its stake in Second Cup to 43 per cent.

Cara held 39 per cent of Second Cup and made a $42 million cash offer to acquire the rest of the specialty coffee retailer, which operates 400 outlets across Canada.

Second Cup opposed the offer, which it said was too low.

The bid expired late Thursday but has been extended to Jan. 21

Cara said it had acquired another 390,000 common shares under the offer, increasing its stake in Second Cup to just over four million shares, or 43 per cent of the company.

The $7.50 a share bid expired a day after Cara won a legal victory by having the Ontario securities regulator kill Second Cup's ``poison-pill" defence — which would have meant issuing new shares to make a takeover prohibitively expensive.

The Ontario Securities Commission ruled Wednesday "it is in the public interest" to scrap the shareholder rights plan.

Gabe Tsampalieros, Cara's president and chief executive, said Thursday the takeover battle "has been a long and difficult process," and insisted the company has no intention of selling its Second Cup stake even though it failed to get control of the coffee company.

"We were very pleased with our success at the Ontario Securities Commission in having Second Cup's poison pill cease-traded," Tsampalieros said in a release. "However, given that the poison pill was only struck down yesterday, we wanted to make sure all remaining shareholders have a chance to tender to the offer."

Cara (TSE: CAO) , which said late Thursday it won't sweeten its offer again, wants to take full management control of the coffee shop chain to make it more profitable in an increasingly competitive industry.

Cara, with 28,000 employees and more than $1.6 billion in sales at its restaurants and food operations, launched its initial bid last August to ensure Second Cup had one main shareholder working with it to reach its goals. The first bid was $7 apiece for three million shares, which would have increased its holding to about 70 per cent.

Second Cup rejected Cara's offers, saying they are well below the $8.25 to $9.75 a share the company is worth based on a review by brokerage TD Securities.

Robert Haft, chairman of the special Second Cup (TSE: SKL) committee examining the bid, said the OSC ruling this week didn't change the fact Cara's offer is below the valuation "and should be rejected by shareholders."

Other major Second Cup minority shareholders include Michael Bregman, whose family owns 24 per cent of Second Cup's shares, and Investors Group, which holds 17.4 per cent of the shares.


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